Ukraine crisis to hit corn, wheat output

(Agrimoney) – Ukraine’s wheat and, especially, corn harvests will fall this year thanks to a double whammy of economic uncertainty and dry conditions, undermining exports, US officials said.

Production costs for growers are rising at an annual rate of 20-30% – compared with an average increase of 10% over the past five years – and may “go up even further”, thanks to the inflationary pressure from a weakened local currency, the hryvnia, on prices of imported inputs.

“Local currency devaluation in the last four months by about 40% affects input costs directly,” the US Department of Agriculture’s Kiev bureau said.

“An increase in input costs for agricultural producers that is already occurring is expected to translate into lower use [of], or application of cheaper (which in most cases means less effective), fertilizer and especially plant protection means and seeds.

“A good share of fertilizer components, for production of ready-to-use fertilizers in the local facilities, and plant protection products are imported to Ukraine from China, Russia, Belorussia, and other countries.”

‘Negative effects’

The impact of the weak hryvnia, sent to record lows by Ukraine’s political turmoil, has been exacerbated by lower world crop prices for much of 2013-14, a factor which has also “stimulated” growers “to reduce input expenses for the new harvest and to hold off on technology improvements that require large upfront expenditures”.

And yield potential has also been sapped by a dearth of rainfall in some central and southern areas, curtailing wheat production after a largely benign winter for autumn-sown crops.

“The soil as well as air moisture deficiency in the country is expected to have some negative effects on the development of early spring crops and may cut down winter crop yields as well,” the bureau said.

Harvest forecasts

The bureau pegged Ukraine wheat production this year at 20.0m tonnes, down 2.8m tonnes year on year, although still a harvest in line with the five-year average.

Exports will fall 500,000 tonnes to 9.5m tonnes, a historically high pace of shipments.

Corn production was seen falling more severely, by 5.9m tonnes to 25.0m tonnes, given the crop’s greater reliance on inputs such as fertilizer, and with Ukraine farmers, which have been relying on imported seed for about 50% of their needs, seen resorting to lower quality options.

Ukraine corn exports will drop by 3.0m tonnes to 17.5m tonnes.

But barley production was seen falling just 61,000 tonnes to 7.50m tonnes, with the grain expected to be favoured in sowings plans “as a lower-cost-of-production crop”.

‘Yield potential could be lower’

The comments precede the USDA’s first official forecasts due later this week for grain harvests worldwide, and come amid mounting concerns over the Ukraine crisis, which helped send wheat prices on Monday to one-year highs.

Indeed although the bureau’s report, while freshly published, was actually written a month ago, the crop worries remain alive, bar rain relief for some dry areas.

Crop consultancy Agritel said on Friday that farmers were expected to make “lower use of certified seeds, fertilizer and pesticides.

“Therefore, yield potential could be lower than last year, all the more as weather concerns could appear.”

Market talk

Prospects for corn are particularly in question, given its status as a spring-sown crop, unlike wheat, for which the great majority of Ukraine’s harvest was planted last year, before political unrest.

At Chicago broker RJ O’Brien, Richard Feltes said he was continuing “to hear 2014 Ukraine corn production forecasts as low as 22m tonnes due to tightening credit and a 40% year-to-date plunge in the local currency”.

The level of Ukraine corn production “will be a key determinant of 2014-15 US corn exports,” he said.

As for Russia’s important wheat harvest, that was expected at 53m-55m tonnes, up from 52.1m tonnes last year, Mr Feltes added.